Introduction
Texas has become one of the most popular destinations for businesses and individuals looking to take advantage of its low-tax environment, strong economy, and business-friendly policies. With no state income tax and a relatively simple tax structure, many people and companies are relocating to Texas to maximize financial benefits.
This guide explores why Texas is a top choice for businesses and individuals, its tax advantages, and potential hidden costs to consider before moving.
Why Do People and Businesses Move to Texas?
Texas offers a range of financial and economic benefits that make it attractive for individuals and businesses:
- No state income tax – Keep more of your earnings.
- No corporate income tax – Lower tax burdens for businesses.
- Low business regulations – Easier to start and operate a company.
- Strong economy – Texas has one of the largest GDPs in the U.S..
- Affordability – No state income tax offsets the cost of living.
Key Tax Benefits of Living in Texas
| Tax Type | Texas | States with High Taxes |
|---|---|---|
| Personal Income Tax | None | California (13.3%), New York (10.9%) |
| Corporate Income Tax | None | Illinois (4.8%), Pennsylvania (8.99%) |
| Estate & Inheritance Tax | None | New York (16%), Washington (20%) |
| Sales Tax | 6.25% (up to 8.25%) | California (7.25% + local taxes) |
| Property Tax | 1.6% – 2.2% | Florida (0.89%), Colorado (0.49%) |
Texas Tax Benefits for Businesses
No Corporate Income Tax
- Businesses do not pay state corporate income tax, allowing higher profits.
- Instead, businesses may be subject to the Texas Franchise Tax (applies to revenue over $2.47 million).
Texas Franchise Tax Overview
- Applies to businesses with revenue over $2.47 million.
- 0.375% tax rate for retail and wholesale businesses.
- 0.75% tax rate for other businesses.
Sales Tax Exemptions for Businesses
- Manufacturers can claim sales tax exemptions on equipment.
- R&D tax credits help technology and innovation-based businesses reduce tax burdens.
- Texas Tax Benefits for Individuals
No Personal Income Tax
- Earned income, capital gains, and retirement income are not taxed.
- Ideal for remote workers, investors, and retirees.
Retirement Tax Benefits
- Social Security, pensions, and 401(k) withdrawals are tax-free at the state level.
- No estate or inheritance tax, making Texas a wealth-friendly state.
Property Tax Considerations
- Texas has higher-than-average property taxes due to no state income tax.
- Homeowners can lower property taxes by applying for the Texas Homestead Exemption.
Hidden Costs of Moving to Texas
While Texas offers many tax advantages, there are some hidden costs to consider:
- High Property Taxes – Texas has an average property tax rate of 1.6% – 2.2%, which is higher than many states.
- Sales Tax on Goods and Services – Texas has a 6.25% base sales tax, with some areas charging up to 8.25%.
- Franchise Tax for Businesses – Although there is no corporate income tax, businesses over $2.47 million in revenue pay a franchise tax.
Texas vs. Other States: Which One Offers Better Tax Savings?
| State | Personal Income Tax | Corporate Income Tax | Property Tax Rate | Sales Tax Rate |
|---|---|---|---|---|
| Texas | None | None | 1.6% – 2.2% | 6.25% – 8.25% |
| Florida | None | 5.5% | 0.89% | 6% – 8.5% |
| California | Up to 13.3% | 8.84% | 0.76% | 7.25% – 10.75% |
| New York | Up to 10.9% | 6.5% | 1.72% | 4% – 8.875% |
- Texas and Florida are the best states for tax savings, with no state income tax.
- Texas has higher property taxes, but lower business taxes than Florida.
Who Benefits Most from Moving to Texas?
Best for Individuals Who:
- Earn high salaries and want to avoid state income tax.
- Own a home and qualify for a homestead exemption.
- Plan to retire in a tax-friendly state.
Best for Businesses That:
- Operate as LLCs, S-Corps, or sole proprietorships to avoid corporate taxes.
- Have high revenue and want to minimize tax liability.
- Need state tax exemptions for manufacturing, R&D, or energy production.
- Common Mistakes to Avoid When Moving to Texas for Tax Savings
- Underestimating property taxes – Homeowners should apply for exemptions.
- Not planning for sales tax – Texas has a higher sales tax than some states.
- Assuming all businesses pay no tax – Businesses over $2.47 million in revenue pay franchise tax.
Should You Work with a CPA for Tax Planning?
A CPA can help:
- Structure your business to minimize franchise tax.
- Identify deductions and credits to lower tax liability.
- Plan for property tax exemptions and avoid surprises.
Conclusion
Texas is an ideal destination for individuals and businesses seeking low taxes, strong economic opportunities, and financial growth. While property taxes and sales taxes may be higher than in some states, the absence of personal and corporate income tax provides significant tax savings.
For expert tax planning, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
Why do people move to Texas for tax reasons?
Texas has no personal or corporate income tax, making it attractive for high earners and business owners.
Does Texas have hidden taxes?
While Texas has no state income tax, it has higher property taxes and sales taxes.
Is Texas or Florida better for tax savings?
Texas has lower business taxes, while Florida has lower property taxes.
How can businesses lower tax liability in Texas?
Businesses can claim R&D tax credits, manufacturing exemptions, and payroll deductions.
Should I consult a CPA before moving to Texas?
Yes, a CPA can help minimize tax liability and maximize tax benefits before relocating.